Reliance MF to unveil MSCI India Exchange Traded Fund

Reliance Mutual Fund has filed an offer document with securities and exchange board of India (SEBI) to launch Reliance MSCI India Exchange Traded Fund, an open-ended, exchange listed, index linked scheme tracking MSCI India Index.

The new fund offer (NFO) price for the scheme is Rs 10 per unit.

Investment objective:The investment objective of the scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the MSCI India Index.

Plans:The plans / options are not applicable for the scheme.
Asset allocation:The scheme would invest 90% to 100% of asset in securities covered by the MSCI India Index, with a risk profile of medium to high. The scheme would invest 0% to 10% of asset in money market instruments, G-secs, convertible bonds, debentures & other securities including collatarised borrowing and lending obligation (CBLO) with low risk profile. Debt securities will also include securitized debt, which may go up-to 10% of the portfolio.

Load structure:Entry and exit load charge is nil for the fund brought or sold through the secondary market on the NSE. However, an investor would be paying cost in the form of a bid and ask spread and brokerage, as charged by his broker for buying / selling these ETF`s. In case, there are no quotes on the NSE for five trading days consecutively, an investor can sell directly to the fund with an exit load of 5% of NAV. The payout of such redemptions will be on the respective pay-out day.

Minimum application amount:Minimum application amount for purchase will be Rs. 5,000 per application. There after purchase / sale of units on the stock exchange will depend on demand and supply at that point of time and underlying NAV. There is no minimum investment, although units are purchased /sold in round lots of 1 unit.

Target amount: The minimum subscription (target) amount of Rs. 5 million is expected to be raised during the NFO period of Reliance MSCI India Exchange Traded Fund.

Benchmark index:The scheme`s performance will be benchmarked against MSCI India Index.

Fund manager:The fund manager of the scheme will be Krishan Daga.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20090904095155707&dir=2009/09/04&secID=livenews

The price of simplicity

A closer look at the Direct Taxes Code reveals that it’s not going to be all gung-ho for individual taxpayers. In fact, with fewer deductions and tax-saving options, they could end up paying a heavy price in the long run.

The new Code may leave investors scrounging for options that would help build wealth with a limited tax impact.

Investors and laymen have greeted the first reading of the new Direct Taxes Code Bill, 2009 with relief, believing that it will ‘introduce moderate levels of taxation’ and ‘simplify the existing provisions’ by replacing the archaic Income-Tax Act, 1961.
However, a detailed reading of the Code suggests that while it may simplify matters for the taxman, the individual taxpayer may end up paying a high price over the long run.
For one, even as the Code has liberally raised the slabs of income that would be subject to tax, it has done away with a number of ‘expenses’ currently allowed as deduction for the individual. Two, it proposes to make no distinction between short term and long term capital gains as far as the tax rates go.
And, the third and most significant move that can have long-term ramifications on the savings and retirement kitty of the citizens is the introduction of the Exempt Exempt Tax (EET) regime on all investments, which is literally a sting in the tail for investors. We explain these three key aspects of the Code (as far as the personal taxes go) and their implications for a taxpayer/investor.

Slab, deductions

The most conspicuous change in the Code is in the rates and slabs for income-tax.
The new Code has raised the income to be taxed at 20 per cent to Rs 10 lakh (Rs 3 lakh at present). Only an income of Rs 25 lakh and above (at present, Rs 5 lakh) would suffer a 30 per cent tax rate.
While this may, on the face of it, seem like a liberal regime, it may end up increasing the tax suffered by many, especially those enjoying various deductions.
The Code seeks to do away with deductions such as house rent allowance, leave travel allowance, medical allowance, as well as interest paid on home loan, which usually offer substantial tax shelter to salaried taxpayers (interest on housing is now to be allowed as a deduction only against any rental income from let-out property). These deductions are currently a blessing for taxpayers who hover in the borderline between a lower and higher slab.
Ostensibly to counterbalance this, the Code increases the exemption limit for savings (currently under Section 80C) from Rs 1 lakh to Rs 3 lakh. However, two facts may prevent investors from reaping benefits of this.
One, it is highly unlikely that a person earning anywhere up to Rs 6 lakh would have surplus to lock 50 per cent or more of his earnings into tax-saving instruments.
Two, Section 66 (the substitute for the present Section 80C) restricts the scope of permitted tax-saving investments to far fewer options — approved provident funds, superannuation funds, the new pension scheme and pure life insurance plans.
This essentially means that tax-saving options such as five-year bank deposits, equity-linked savings schemes (ELSS) of mutual funds, unit-linked insurance plans (ULIPs) and principal on home loan, to name a few, would not qualify for the Rs 3 lakh limit under the proposed law.
This would leave investors with fewer tax-saving options that have the potential to beat inflation. Besides, money withdrawn from these options would also be taxed.

Postponing tax

According to the Code, the amount invested in the tax-saving instruments mentioned above will be exempt at the time of investment (subject to Rs 3 lakh) and exempt when it earns interest and but fully taxed at your marginal rate of tax when the amount matures or is withdrawn. That is EET for you.
So provident and superannuation funds, insurance policies as well as accumulations under the new pension scheme would suffer tax when you withdraw the balance at retirement or otherwise.
Under the current law, savings in avenues such as provident fund were exempt at all levels (EEE), even at the time of withdrawal.
So EET merely postpones your tax burden to the time of withdrawal. For the salaried class, this typically means pushing the tax burden towards their retirement.
While accumulated amounts in provident funds up to March 2011 would not fall under the EET net, fresh investments post this date would.
However, a similar ‘grandfathering’ clause has not been stated for insurance policies. The Code has instead given some concessions for insurance policies, which may make very few policies eligible for exemption on withdrawal.
Unfortunately, the tax-saving instruments which fall under EET are the primary sources of saving for the Indian household.
According to RBI data life insurance policies, for instance, accounted for 20 per cent of the 2008-09 financial savings of the Indian household while provident/pension funds accounted for 9.5 per cent. Taxation of this significant component would result in poor yields for investors.
Let us take the case of PPF. The post-tax yield of a lumpsum invested in year 1 alone now yields 8.7 per cent after 15 years, assuming an 8 per cent return and a 10 per cent tax rate. Under the Code, the yield would drop to 7.9 per cent.
Unlike developed countries of the West which have social security systems provided by the government, the Indian household is dependent on savings to fend off post-retirement blues of inflation and medical expenses. According to Mr V. Ranganathan, Partner, Tax and Regulatory Services, Ernst & Young Pvt Ltd, the concept of EET, etc., is relevant for taxing the social security receipts (such as pension) and not saving schemes such as insurance products; savings products are not part of any such regime in other countries. The proposal causes worry on this front.

Capital gains

With the new Code likely to erode many of the tax-related reasons for investing in debt avenues, equities and real estate may remain the only asset classes that allow a reasonable post-tax return to investors.
However, their post-tax returns too could dip, given the re-jig in capital gains.
The Code proposes to do away with the distinction between short-term and long-term capital gains for all asset classes. Long-term capital gains would receive indexation benefit if held for over one year from the end of the financial year in which the asset was purchased. Capital gains are proposed to be taxed at the marginal rate of tax or in other words, the tax slab applicable to the individual.
What are the implications of this? Long-term investors in asset classes such as listed equities would suffer taxes on their investments. They do not currently attract any tax. They may nevertheless remain a superior asset class for those in the lower income bracket, provided the Indian equity markets continue to outperform.
Besides, there is some respite in the form of set-off of capital losses against capital gains before paying taxes.
All this suggests that, far from simplifying things for Indian investors, the new Tax Code, if implemented in its current form, may leave investors scrounging for options that would help build wealth with a limited tax impact.

Source: http://www.thehindubusinessline.com/bline/iw/2009/08/30/stories/2009083050791200.htm

Systematic investments work well in MF scheme

You don’t have to tell anyone these days that mutual funds (MFs) are the most convenient form of investing, especially for small or individual investors. However, when it comes to options available within MFs—for example, systematic withdrawal or systematic transfer—most people would plead ignorance. Its the same with trigger option available with mutual funds.
However, most people would be somewhat familiar with systematic investment plan or SIP, thanks to the publicity given by most financial experts . “It is true that most of our clients are familiar with the concept of SIP, but the others are yet to catch up in a big way,’’ informs Suresh Sadagopan, chief financial planner, Ladder7 Financial Advisories. Let us start with Systematic investment plan or SIP.
For those who came in late, SIP is very similar to a regular recurring deposit in a bank account. You draw a cheque in favour of a particular MF scheme and specify you want to invest for, say, next 12 months. The money will be taken from your bank account every month and invested in the scheme of your choice.
Why is this method preferred by financial experts? One, this gives you discipline. Two, you wouldn’t be unnecessarily influenced by stock market movement, and stop or increase your investments. Three, you would benefit from cost averaging. That is, when you buy MF units at regular intervals, the average purchasing cost could give higher returns.

Systematic investment plan can be used by any investor eyeing the market in a particular period of time. However, it is not the case with systematic withdrawal or transfer plan or using triggers. These tools would work only for a particular class of investors. “Systematic withdrawal plans are useful for particularly retired people, whereas systematic transfer plans are useful for people with large amount, but don’t want to invest in the market at one go,’’ says Suresh Sadagopan.
Systematic transfer plan allows an investor to withdraw a certain sum from the scheme at periodical intervals. “It is often used somewhat like annuity by retired people. However, the concept is yet to take off,’’ says a MF investor. Systematic transfer plans, on the other hand, is useful for investors who suddenly find themselves flush with funds.

Since it is not considered wise to invest in the market in lump sum, especially when it is up or volatile, they can park the money in a debt scheme and transfer a particular amount over period of time to an equity scheme of their choice. “It is a good option, which investors should make use of,’’ says Sadagopan.
Triggers, on the other hand, is the latest tool offered by a few mutual funds to risk averse investors . For example, if an investor is looking for 10% returns from his investment in a year, he can set the trigger at that particular point. He would have the option of either transferring his return or the entire investment to a safer (read debt) avenue once he gets 10% returns . “But it can also rob them of a chance to make more money from the market. Also, they have to be very clear whether they want to transfer the returns or the entire investment,’’ says an MF advisor.

Source:http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Analysis/Systematic-investments-work-well-in-MF-scheme-/articleshow/4966296.cms?curpg=2

Common platform for all MF investments likely from March

Tired of filling several application forms to invest in different mutual fund schemes? Wait till March 2010, and you’ll just click this cumbersome process away.

The advisory committee of the Association of Mutual Funds in India (Amfi) has finalised a proposal containing recommendations for a common platform to provide easy access to investors and distributors to reduce costs, improve efficiency and save time. To begin with, investors will have to register with a designated agency that will give them unique identification numbers, which could be their permanent account numbers, and passwords. Through this, they can log on to a website, transact and access information, including the value of all their mutual fund investments.
The system is akin to the one adopted by the Pension Fund Regulatory and Development Authority (PFRDA), where you can approach a designated point of presence, register for the New Pension Scheme (NPS) and receive a Permanent Retirement Account Number (PRAN). The number also entitles you to track your investment, for which records are maintained by a central recordkeeping agency.
Amfi Chairman AP Kurian said, “We are working on a technology-driven common platform to provide easy access to investors and distributors. It will help fund houses improve their efficiency. Besides, transactions will be faster, thereby saving time and costs. And ultimately, it will provide a wider reach to investors.”
Currently, there are many mutual fund offices, distributors and franchisees in the industry. Investors submit their applications through these channels. From here, the applications go to the registrar and transfer (R&T) agents for processing and sending their account statements.
“This process is paper-oriented and time-consuming. Through a common platform, we are trying to reduce the paperwork as much as possible and connect the brokerages,” added Kurian.
According to Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund, the step is essentially to empower the investor with choices. “Once you empower the investor, the revenue will automatically increase. For instance, there will be a common application form for different mutual fund schemes, and one need not go to different fund houses for different application forms. Once this proposal is implemented, all the information will be just a click away,” he said. Bhattacharya is also a member of the Amfi’s advisory committee.
“It’s an investor-centric initiative. Instead of receiving several statements, an investor would get only one statement. For technology-savvy investors, statements will be available at a click. We want to go step by step. We are targeting March 2010, by which the new mechanism would be in place,” said Kurian.
Several other chief operating officers Business Standard spoke to also said that the measure was the need of the hour. It would help increase penetration in Tier-II and III cities with relatively lesser costs.
At a time when entry load has been banned by the Securities and Exchange Board of India and the Reserve Bank of India has, in its annual report, expressed concerns over the over-dependence of fund houses on corporate and institutional money resulting in poor rural penetration, industry experts feel that such a common platform will help fund houses address these issues.

Source: http://www.business-standard.com/india/storypage.php?autono=368997

MF industry's assets cross Rs 7 lakh cr-mark

The mutual fund industry's breached Rs 7 lakh crore-mark in assets in August, with the country's largest fund house Reliance MF maintaining its top position with an average assets under management (AUM) of over Rs 1.17 lakh crore.

The mutual fund industry's total AUM grew by Rs 59,965.79 crore, or 8.69 per cent, which analysts believe was mainly propelled by the inflow into the fixed income plans.
The combined average AUM of the 36 fund houses in the country hit the historic Rs 7 lakh crore-mark at the end of August at Rs 7,49,911.91 crore, according to the data released by Association of Mutual Funds in India (AMFI).
The MF industry had an AUM of Rs 6,89,946.12 crore at the end of July.
"Income funds were in demand in August. Banks and corporate houses have parked their surplus cash with the fund houses, thereby leading to an increase in the AUMs," Taurus Mutual Fund Managing Director RK Gupta said.
HDFC MF registered the biggest jump of Rs 10,508.09 crore in its average AUM during the period, taking its total assets to Rs 93,874.19 crore at end of August.
The country's largest fund house Reliance MF saw an addition of Rs 8,979.40 crore during the month to its assets. At the end of August the average AUM of Reliance MF stood at Rs 1,17,313.78 crore.
ICICI Prudential, the third largest fund house, saw its assets rise by Rs 4,638.30 crore to Rs 77,966.86 crore. While, UTI MF's assets grew by Rs 6,674 crore to Rs 73,925.90 crore at the end of August.
"In absence of credit growth, banks are right now sitting on surplus cash. With the increase in bank deposits banks are parking money in MFs which helped in increasing the industry AUM," Gupta added.
Fund houses which saw an increase in their average AUM in August include Canara Robeco MF, Deutsche MF, IDFC MF, Religare MF and LIC MF.
However, the AUM of DSP BlackRock Mutual Fund dropped by Rs 120.85 crore, HSBC Mutual Fund dipped by Rs 478.76 crore and Benchmark Mutual Fund fell by Rs 6.42 crore.
Other fund houses which saw a decline in their AUMs include ING Mutual Fund, JPMorgan Mutual Fund, SBI Mutual Fund and Shinsei Mutual Fund.
However, analysts cautioned that there could be a decline in the assets of the fund houses during this month as banks would withdraw cash at the end of September quarter.
"There could be a slight decline in AUMs this month as advance tax payments by corporate houses and big ticket Oil India public offer could take out some money from the industry," he added.
The BSE benchmark index Sensex remained flat over August and had settled at 15,666.64 points at the end of trade on August 31.

Source: http://www.business-standard.com/india/news/mf-industry%5Cs-assets-cross-rs-7-lakh-cr-mark/72458/on

Your investment cost just got lower

In times when spiralling food prices seem to be pinching the wallet on a daily basis, fierce competition among financial institutions and strict regulatory actions are ensuring that your investment costs have started falling. Here are four such examples:

Entry load ban for mutual funds: From August 1, the Securities and Exchange Board of India (Sebi) has banned the entry load of 2.25 per cent on equity funds and 1 per cent (maximum allowed) on debt funds.
This amount was earlier deducted from your investment and given to the distributor of mutual fund schemes by fund houses. That is, if you invested Rs 100 in an equity fund, Rs 97.75 would be invested and the rest Rs 2.25 would be given to the distributor.
From August 1, the distributor has to negotiate the commission with the investor itself and be paid through a separate cheque. Also, these distributors have to declare the commission paid by fund houses for similar schemes.
“Distributors will now have to justify their fee by recommending good schemes to customers. Why else will someone pay?” said Gaurav Mashruwala, a certified financial planner.
Also, the market regulator has asked fund houses to charge the same exit load to both retail and high networth individuals.
Ulip costs capped at 3 per cent: Though, financial planners will say that insurance should be separated from investment, most buyers of unit-linked insurance plans (Ulips) can be accused of looking at hefty returns.
As a result, sellers/ agents of Ulips have often been accused of charging astronomical sums in initial years - much more than that for mutual fund products. However, the Insurance Regulatory and Development Authority (Irda) has recently capped the difference between gross and net yield at 3 per cent for a 10-year policy and 2.25 per cent for a 15-year policy.
“But this is only valid for customers who stay in for the entire term of the policy. If you decide to surrender before the policy matures, the charges will still be marginally higher,” said G V Nageswara Rao, managing director and chief executive officer, IDBI Fortis Life Insurance.
Medical insurers cannot deny renewability: This should come as a relief to senior citizens as they are more prone to illness. Earlier, insurers would either deny renewing a mediclaim policy to a person who had made a claim or would hike the premium substantially.
Irda recently said that from June 1, insurance companies would not deny extending medical insurance and also have to explain the hike to a person. “There was a fear that the existing sickness may lead to more claims and, in turn, more losses,” said S Narayanan, managing director and chief executive officer, Iffco-Tokio General Insurance. Also, the maximum entry age of an individual for medical cover has been raised to 65 from the earlier 50-55.
Reduced loan rates: Call it competition or the lack of credit offtake, but banks have been forced to cut home and auto loan rates aggressively.
State Bank of India (SBI) has been slashing rates in a hurry. It has already cut rates thrice since January. In the recent cut, borrowers of Rs 5-50 lakh will get the loan at 8 per cent for the first year and 8.50 per cent for the next two years. These loans come without any administrative cost and free insurance for personal accident.
Following this, other lenders too have cut rates. HDFC Bank slashed rates by 50 basis points to 9 per cent for Rs 30-50 lakh.
The current United Progressive Alliance (UPA) government has also pitched in and given a subsidy of 1 per cent for loans up to Rs 10 lakh (price of house up to Rs 20 lakh).
For auto loans, Canara Bank is charging 8.50 per cent in the first year, 9.50 per cent for the next 24 months and 10 per cent for the 36-60 month period. Following the aggression shown by public sector banks, ICICI Bank cut its auto loan by 50-75 basis points and the rate ranges between 12 and 14 per cent now, depending upon the car.

Source: http://www.business-standard.com/india/storypage.php?autono=368874

Mutual funds: When small is beautiful

Does fund size affect the performance of equity mutual funds? A recent working paper at the Yale School of Management involves an empirical study in the Indian context. It’s notable as the principle of ‘economies of scale’ is not an exception to the realm of finance and investment. The study aims to ascertain the degree or extent of relationship between fund size and actual performance when it comes to returns on asset management. The research reveals rather surprising results for Indian mutual funds.
The mutual funds industry in India had assets worth over Rs 7 lakh crore under management as of July 2009 with the bulk of it in debt funds. There are now 36 asset management companies (AMCs) in the MF ‘space’. Meanwhile the regulator, Sebi, has mandated doing away with the levy of ‘entry loads’ for MF investors. It is distributors who have traditionally pocketed the ‘load’ as commission. So, AMCs would need to figure out innovative marketing and perhaps also hand out “out of pocket” commissions for product distributors. The correlation between fund size and returns is seen as relevant because when a corpus is sufficiently large, the fund managers involved would likely have the necessary liquidity and flexibility for timing investment decisions and stock selection. Additionally, size has the added advantage of reducing transaction costs by resorting to bulk ‘buys’. The paper uses data of a three-year period: April, 2006 to April, 2009. Also, while the total number of open-ended equity/growth funds totalled 244, the sample size chosen was 22, with a mix of micro, small, medium and large-size funds. Next, the net asset values of the select equity funds were worked out for the first trading day of each quarter of the 3-year period for computing the return (CAGR), risk and return per unit of risk and risk adjusted return (Sharpe Ratio) of the funds.
The actual fund sizes varied from Rs 9.57 crore to Rs 2,472.36 crore. The funds labelled ‘micro’ had less than Rs 100 crore under management; those characterised ‘small’ had a corpus of less than Rs 500 crore; medium pertains to less than Rs 1,500 crore; and large-size funds were those with up to Rs 2,500 crore under management.
In the paper, the concept of momentum (mass*velocity), a popular concept in physics and mechanics, has been incorporated to engineer a new concept termed ‘fund momentum’ construed as the product of fund size and CAGR.
The results of the study suggest that all the performance parameters such as return, risk, return per risk, return per fund size and Sharpe Ratio were found to be negative. But then, overall the stock market returns for the period under study was negative. From econometrics testing of the hypothesis, it is clear that the correlation coefficient of fund size and performance variables are ‘not significant.’ So there’s no ‘conclusive evidence’ in the paper that fund size affects performance of equity/growth funds, whether they are micro-, small-, medium- and large-sized funds. Further, the variances between fund size and performance variables show that barring risk, the other three parameters–return, return/risk and Sharpe Ratio–move together in the same direction and the values are seen as ‘random’ and no conclusive evidence may be drawn about fund size and performance of equity/growth funds across the size range.
Besides, the small-sized funds seem to have performed better than micro-, medium- and large-sized funds in terms of return per risk and risk adjusted return. The Weighted Average Momentum (WAM) of the small-sized funds was found to be the second best after that for micro-sized funds which, anyway, added up to a mere 2.02% of the total fund size of equity/growth funds. Hence the paper considers the performance of small-sized funds as the best in terms of WAM. As for the medium- and large-sized equity/growth funds, they were quite unable to outperform the overall stock market in terms of returns. So when it comes to mutual funds in India, ‘small’ appears to be beautiful.

Source: http://economictimes.indiatimes.com/Opinion/Jaideep-Mishra-Small-mutual-funds/articleshow/4956932.cms

Funds offering better returns than sensex

The net asset value (NAV) appreciation of nearly 480 funds or nearly one out of every two funds has bettered the sensex returns of 9% in the past year.
Around 100 funds have at least doubled the 30-share index’s gains. The ones like IDFC Small & Midcap Equity (42.92%), Tata Life Sciences & Tech (39.79%), UTI Transportation and Logistics (37.96%), Canara Robeco Equity Tax Saver (36.25%), Birla Sun Life Dividend Yield Plus (35.69%), ICICI Prudential Gilt Investment PF (35.23%) and Reliance NRI Equity (33.99%) returned eye-popping 3x times sensex’s returns. Overall, there are at least 23 funds which more than tripled the benchmark’s gains in the period starting August 31 2008 and ending this August 30.
‘‘Mutual funds have always showed the ability to beat popular benchmarks. While investors remain cautious especially after Sebi regulations on loads, the fact remains that most funds have good track records. We (the industry) have delivered always alpha (a measurement of risk-adjusted performance),’’ said the CEO of a top mutual fund. Interestingly, many funds which sported NAVs of less than Rs 10 have proved to be real gems and may have helped systematic investment plan (SIP) users. Take for instance Religare Contra fund which had an NAV of Rs 9.78 on August 30, 2008.
The market rally has helped the same fund’s NAV to almost touch Rs 13 per unit, gaining 32.52% in 12 months. Others ‘beaten-down’ funds which have outperformed sensex include Taurus Infrastructure (29.09%), Mirae Asset India Opportunities (25.29%), AIG World Gold (20.27%), HSBC Tax Saver Equity (19.86%) and Morgan Stanley ACE fund (18.81%).
‘‘Many themes may not have done well in the past few months. Take for example international funds. While performance is one of the metrics, it’s important for the investor to allocate some portion of their MF assets to them. They might do well when global economies rise,’’ S Naren, CIO of ICICI Prudential AMC said in a recent interview.
Numerous exchange traded funds (ETFs), which track a specific index or commodity, find their place in the market-beater list with those tracking gold like Gold Benchmark ETF (26.69%) or banks such as Kotak PSU Bank ETF (31.8%) doing exceedingly well.
Monthly income plans, best suited for getting specified monthly payment to investors like senior citizens and retired persons, also make it to the sensex-beater list. Funds like Reliance MIP (27.61%), HDFC MIP Long-term (22.08%), Principal MIP Plus (13.87%), Templeton MIP-G (11.74%) and LIC Floater MIP (10.4%) are some examples.

Source: http://timesofindia.indiatimes.com/NEWS/Business/India-Business/Funds-offering-better-returns-than-sensex/articleshow/4956865.cms